{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

midterm_1_-_questions_Winter_2008

# midterm_1_-_questions_Winter_2008 - ACTSC/STAT 446/846...

This preview shows pages 1–5. Sign up to view the full content.

ACTSC/STAT 446/846 – Midterm #1 – Winter 2008 (Version A - Section 3) Department of Statistics and Actuarial Science, University of Waterloo February, 2008 Name: Section: ( Please write your UWID number on the back of this page only. ) Duration: 50 minutes There are six questions for a total value of 40 points.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
3 of 10 1. [total= 4 points] Suppose S t denotes the price of the stock at time t . Let r be the con- tinuously compounded risk-free interest rate. Today, S 0 = \$45. Assume that there are no dividends. (a) [1pt] Express the forward price F for a forward contract with maturity T years as a function of the parameters of the problem: (b) [3pts] A forward contract with the obligation to buy at maturity T the stock at the forward price F (calculated in a)) is available on the market at a premium 7\$ at 0 < t < T . Give an expression of the stock price at time t .

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
4 of 10 2. [Total=8 points] Consider a binomial tree with u = 1 . 1, d = 0 . 9, time-steps of size 3 months, an initial stock price S 0 = 100, and a risk-free rate of 5% (annual rate, continu- ously compounded). Assume the stock pays no dividend.
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern